Friday, March 18, 2011

I think that economics isn't a science yet (although lots of economists working with micro data and either prforming experiments or finding natural experiments are acting as scientists).

The claim is that economic theories have bowed to facts. The one example presented by Ozimek in which this actually happened is the abandonement of the Phillips curve by academic ecnomists (actual policy makers still use it all the time).

The example of the Phillips curve is always presented. I think this is because it is unique. I might be wrong, but I don't think that there was ever a Phillips curve hypothesis -- that the Phillips curve was an economic law. Such a hypothesis was inconsistent with data available in 1960 -- basically all data from hyperinflations. The conjecture was that it was likely to be a useful relationship for the US and UK assuming things stayed about the same. This just isn't the sort of thing whose rejection is the sign of a science.

I note that those who call the event a scientific revolution tend to quote extremely brief statements from Solow and Samuelson. In fact IIRC always the same one. And it includes weasel words.

The counterargument was very definitely and precisely made by Keynes in "The General Theory of Employment Interest and Money." You will note I omit my customary adjective "clearly". It is in the chapters in which Keynes derived no interesting insights from fiddling around with algebra and just sent the algebra to the publisher.

I explain this at lengthe here http://bit.ly/aWS5PS . "quit hire" should be read as "quit hire" and unfortunately there is a redundant "unfortunately" in a sentence fragment due to rewriting and posting without ever reading.

The claim that economics is a science is fundamentally based on the one hisorical episode in which the evidence was so overwhelming that it convinced Keynsians that Keynes had been right all along.

Newton wept.

The decision (which was very widely shared) that the Phillips curve hypothesis meant that economists had to assume rational expectations doesn't follow. It is a logical fallacy. The argument is that if they had assumed rational expectations, they wouldn't have made that conjecture.

In any case, the reaction of economic schools of thought to rejection of their current model is twofold. First "models are false by definition" and second "OK here is a new model with the same policy implications." This holds in Cambridge MA too. It didn't take long for new Keynesians to get the conclusions they wanted out of models with rational expectations. Scientists do not always reach the same conclusions no matter how many hypotheses are rejected by the data.